McDonnell's Liquor Privatization Plan

Guv McDonnell has finally unveiled his plan to privatize Virginia's liquor stores, a centerpiece of his campaign platform.

The plan illustrates the problem. On the one hand, there is no particularly good reason for Virginia to have socialized liquor. The state's ownership of all liquor stores is an artifact of post-prohibition era efforts to control hard liquor sales. Certainly, the private sector can handle liquor sales with appropriate regulation, while improving service to customers (there are too few liquor stores and their hours are not always convenient).

On the other hand, state ownership of ABC stores brings in more than $250 million a year in revenue. We can't just sell off the stores for a one-time short-term windfall while losing that revenue stream.

So, to keep the revenue while getting the one time benefit--estimated at about $500 million--from privatizing the stores, McDonnell has proposed a series of new taxes. He says they aren't taxes, but they are. That said, they are pretty reasonable taxes--they're basically designed so that liquor sales in Virginia bring in revenue at about the same rate as in other states.

On balance, we like the idea--get the money without losing the revenue stream. But we think that McDonnell's Republican colleagues in the legislature will kill the idea. Anything that reeks of "tax" is anathema to them, no matter how much sense it makes. After all, this isn't a bunch that's really interested in making government work better.

Democrats in the legislature may also make trouble, for political and other reasons. And if the GOP isn't going to support the Governor, why let them label Dems as "tax and spend" even if the plan does make sense.

So most likely another good idea will go down the drain, sacrificed to the gods of politics.

A couple other points on McDonnell's plan. He says he'll use most of the $500 million windfall from privatization to pay for transportation improvements. That's nice--the money is really needed. But it's a drop in the bucket--the Commonwealth needs billions of dollars for transportation, and it needs a dedicated funding source, not a one time benefit, to secure those improvements. Having motorists pay a modestly higher gas tax would do the trick. As a proportion of the price of gas, the tax is less than half what it once was. But those "no tax" Republicans would rather have you sit in traffic than work out a reasonable financing plan. If they ran businesses the same way, they'd be bankrupt.

Also, some Dems are saying that McDonnell's plan to sell about 1000 new liquor licenses may bring liquor close to schools and into low income neighborhoods. We don't think so--most of those licenses are intended to go to outlets that already sell beer and wine. Virginia has too few liquor stores to serve it's growing population now. While 1000 sounds like a lot, it's really not.

Will the plan succeed? Probably not--seems voters don't want "change" after all.